5th Circuit Affirms Dismissal in FCA Action but Declines to Adopt § 3730 Standard

The U.S. Court of Appeals for the Fifth Circuit recently affirmed a district court’s decision to dismiss a False Claims Act action, finding that the hearing requirement for purposes of due process and 31 U.S.C. § 3730 were met.  However, the Court declined to adopt a standard for reviewing dismissals under § 3730.

The plaintiff brought qui tam actions on behalf of the U.S. government under the FCA alleging violations of the Anti-Kickback Statute by the defendants.  The plaintiff alleged that the defendants provided free product-education services to induce health care providers to prescribe their products.  However, the government declined to intervene.  The defendants moved to dismiss for failure to state a claim.  The magistrate judge held a hearing on those motions, and recommended that the motions be granted and denied in part.  The district court adopted those recommendations.  After the plaintiff amended its complaint, the United States moved to dismiss pursuant 31 U.S.C. § 3730(c)(2)(A).  The magistrate judge held a hearing on the government’s motions and recommended that the motions be granted, and the district court adopted those recommendations and dismissed the actions. 

On appeal, the plaintiff argued that the hearing requirement under due process and § 3730 had not been satisfied.  Specifically, the plaintiff argued that the district court did not hold an evidentiary hearing.  The plaintiff added that such hearing required the district court to engage in some meaningful review of the government’s motion.  The Fifth Circuit rejected the plaintiff’s arguments and affirmed the dismissals, finding that the hearing requirement had been satisfied under both for the same reasons. 

While the Court held that some type of hearing was required, it did not decide which standard to apply when the government moves to dismiss a qui tam action under § 3730.  There is a circuit split regarding the requirements for such dismissals.  Under Swift, the government has unfettered discretion to dismiss qui tam actions.  See Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).  While under Sequoia Orange, the government must satisfy a rational-relation test.  See United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).  Under this test, the government must first identify a valid government purpose, and a rational relationship between dismissal and such purpose.  Id.  If the government meets its burden, the relator must then demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.  Id. 

The Court declined to adopt either standard, but held that the dismissal was proper under both.  It found that the government had made the requisite showing under Sequoia Orange, the more burdensome test.  The government showed that the plaintiff’s allegations lacked merit to justify the cost of investigation and prosecution, and further litigation would undermine practices that benefit federal healthcare programs.  On the other hand, the plaintiff failed to show how dismissal was fraudulent, arbitrary and capricious, or illegal.